The glossaryRisk profile
A risk profile is a set of data that characterises each investor’s ability and willingness to take risks. Each of us has a different risk profile based on our financial situation, background, psychology, etc. Some investors aim for conservative choices when managing their money, while others prefer to take aggressive bets. Therefore, they should have different strategies.
Anecdote
In most countries, financial service providers have the obligation to determine the risk profile of their clients, and it is a positive development.
Before investing, each investor should take some time to assess how much risk they can tolerate.
The determination of the risk profile can be somewhat subjective, which is why the methodologies employed by banks have evolved over time, incorporating contributions from different research fields, such as behavioral finance.